Suzhou Cheersson Precision Metal Forming Co., Ltd.'s (SZSE:002976) P/E Still Appears To Be Reasonable

Suzhou Cheersson Precision Metal Forming Co., Ltd.'s (SZSE:002976) price-to-earnings (or "P/E") ratio of 46.9x might make it look like a strong sell right now compared to the market in China, where around half of the companies have P/E ratios below 30x and even P/E's below 18x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

With earnings that are retreating more than the market's of late, Suzhou Cheersson Precision Metal Forming has been very sluggish. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. If not, then existing shareholders may be very nervous about the viability of the share price.

View our latest analysis for Suzhou Cheersson Precision Metal Forming

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Suzhou Cheersson Precision Metal Forming.

Does Growth Match The High P/E?

The only time you'd be truly comfortable seeing a P/E as steep as Suzhou Cheersson Precision Metal Forming's is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered a frustrating 11% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 20% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the lone analyst covering the company suggest earnings should grow by 169% over the next year. That's shaping up to be materially higher than the 41% growth forecast for the broader market.

With this information, we can see why Suzhou Cheersson Precision Metal Forming is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Suzhou Cheersson Precision Metal Forming's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Suzhou Cheersson Precision Metal Forming (2 shouldn't be ignored) you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.